Last year, I posted about the minimum wage in Canada. That same debate has also flared in the United States. During the recent state of the union address, U.S. President Barack Obama argued for an increase in the minimum wage in the United States. The Federal minimum wage in the US is $7.25, which applies to jobs covered by the Fair Labor Standards Act (generally applying to employees engaged in interstate commerce). For US employees governed by state law, the minimum wage can go from $5.25 (Wyoming) to $9.19 (Washington State). In Canada, the vast majority of employees are governed by provincial legislation and the minimum wages stretch from $9.75 (Alberta) to $11.00 (Nunavut). Quebec, Ontario and B.C. currently hover around the $9.90 to $10.25 range.

A U.S. employee making the federal minimum wage and working 40 hours a week would make an annual salary of $15,080. A Canadian employee making $10/hour would make $20,800. According to some U.S. commentators, keeping the minimum wage low boost productivity. Others, like the Financial Times argue that it does not, pointing out that had the minimum wage in the US risen with the cost of living, it would be $10.27 now. President Obama agrees. Is he right? Should the market set the minimum wage or should legislators?

Comments

Whether the market should set the minimum wage is dependent on whether there is an existing frame work that sets out the stipulations of how the minimum wage is to be indexed. Ideally, there should be a living wage indexed to the cost of living by region. (I’ve presented my arguments on this previously see http://www.slaw.ca/2011/05/17/is-the-minimum-wage-a-living-wage)

A wage not indexed to cost of living results in increased household debt and eventually stagnant spending as consumers prioritize to decrease their debt. If the ordinary person can only afford the basic necessities with little left to spend on “luxury” items how can there be a rise in productivity?

clearly there is no ‘natural’ minimum wage, so the legislature has to set it the first time round. It is possible to index it after that, though, either to the consumer price index or to some percentage of the average wage (industrial? commercial? retail?). Indexation would not be letting ‘the market’ decide either, but it would release it a bit from political control. OTOH why should it be released from political control? It is an economic and social tool and should be wielded by the people making economic and social policy.

A minimum wage is something that is hard for a market to set, in part because it’s a public-policy question, and partially because the mechanism of a market is a mean of finding the lowest possible cost for a good or service.

As an extreme example of the latter, we see software developers literally setting the customers’ capital costs to zero for products such as Libre Office. In that case the cost of production is zero, and the capital investment has long since been recouped. [The only cost is in making future improvement, which is recouped by offering customers support contracts at a rather moderate rate]

Since not everything in this world is software, one needs to make a conscious decision as to how little a human’s efforts are worth at the minimum, and a subsequent decision if you are willing to permit a business to pay less. Both of these are value judgments, and a marketplace or a theory of economics can only contribute weakly to the discussion.

Nothing like a little economic claptrap to get the political juices going.

Dickson and others have written in the legal field about the unequal power relationship between an employee and an employer.

It has also been fairly widely accepted that any notion that the “market” is functioning as a “market” at least since the latest worldwide economic depression began in 2008 is limited strictly to fairy tales. And for 100 years at least, democratic governments around the world have wrestled with business monopolies and oligopolies as these very big organizations run rough shod and anarchically over the planet, pushing states, big and small, around, not to mention what is done to individuals.

There are no studies which show a positive impact of a lack of minimum wages in a society. There is however centuries of evidence (“evidence based”, laws, etc. take your pick) proving and demonstrating that without a floor to wages there is greater immiseration of the working population. Finally a minimum wage as a concept is not to be confused with a guaranteed annual income. It might have been in the 18th and 19th centuries that the argument was made that a minimum wage regime is better than nothing, but the minimum wage always was and is tied to other social programs: food banks, volunteering, homeless shelters, child benefits, etc. With or without a minimum wage, there is a need for social programs. The minimum wage simply keeps body and soul together for another working day. Or as could be said, with or without a minimum wage there are no frills and maybe no regular roof.